Table 15-7 Lex Enterprises Is Considering Alternative Ways of Raising Capital for Capital

question 13

Multiple Choice

Table 15-7
Lex Enterprises is considering alternative ways of raising capital for the purchase of a new factory. One alternative suggested by the controller is the issuance of bonds. After discussions with an underwriter, Lex decides to issue $5,000,000 of 7%, 10-year bonds dated May 1, 2017, with interest payment dates of November 1 and May 1. Lex's year end is December 31. Lex uses the effective-interest method of amortization.
-Refer to Table 15-7.Assuming the bonds were issued on May 1,2017,at 87 when the market interest rate was 9%,and the company uses the effective interest method of amortization,the semiannual interest payment on November 1,2017,would include a:

• A) debit to Interest Expense for $175,000
• B) credit to Discount on Bonds Payable for $20,750
• C) debit to Premium on Bonds Payable for $20,750
• D) credit to Interest Payable for $195,750